Neovasc Inc.
Q3 2015 Earnings Call Transcript

Published: 9 Nov 2015

[Operator:]

Good morning, ladies and gentlemen. Welcome to the Neovasc Third Quarter 2015 Results Conference Call. At this time all participants are in a listen-only mode. [Operator Instructions] I would like to remind everyone that today's discussions make contain forward-looking statements that reflect current views with respect to future events. Any such statements are subject to risk and uncertainties that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on Neovasc risks and uncertainties related to these forward-looking statements, please refer to the Company's Canadian and U.S. filings which are available on SEDAR and EDGAR. Now I would like to turn the call over to Alexei Marko, Chief Executive Officer of Neovasc. Please go ahead.

[Alexei Marko:]

Thank you, Chris, and welcome everyone to our first quarterly conference call. Over the past 12 months we significantly expanded our shareholder base. In the coming quarters we have a number of major milestones to achieve in our key cardiovascular programs. These calls will provide a clear disclosure platform to update all views we continue to advance our lead devices. And in the course help to transform how advanced cardiovascular disease is treated. With me this morning is our Chief Financial Officer, Christopher Clark. Chris will start this off today with some commentary on our performance this quarter and on our overall fiscal position. Chris?

[Christopher Clark:]

Thank you, Alexei. Starting with revenue, as we had previously projected revenues declined year-over-year by 22% to 9.7 million and we expect to end the year with revenue of just under 13 million. In June 2015, as anticipated we completed our contract manufacturing relationship with Lemaitre Vascular transforming all manufacturer their past products to them with the result in decrease in revenues. We have also seen the Tiara market mature with more programs seeking biological tissue and manufacturing services. However, our core business in key customer base remains strong. On the positive side for revenue growth, we have initiated our product commercialization of the Reducer in Europe and we’re seeing first revenues from this product which Alexei will discuss further. Gross margins have declined by 32% or 1.6 million to 3.4 million for the nine months to September 30, 2015 of which approximately 1 million can be attributed to the reduction in revenues. Our balance relates to the loss of a significant higher margin account at the end of 2014. Turning to expenses. Total expenses incurred for the nine months to September 30, 2015 was 30 million increasing by 13 million or 79% from 2014 principally due to litigation expenses and increased product development and clinical trial activities. Year-over-year litigation expenses increased by 6.1 million. Total litigation expenses since the initial claims were filed in June 2014 by CardiAQ are 7.4 million and we may require approximately 5 million more to cover litigation expenses through the completion of the trial which is expected in May 2016. Increases in product development and clinical trial activities can be split into a 2.3 million increase in cash based employee expenses as we have added star from both Vancouver and Minneapolis. The 5.9 million increase in other development and clinical expenses - as we have accelerated activities in these areas. Overall we are reporting a loss of 10 million and 24.4 million for the three and nine months ended September 30, 2015 of $0.15 and $0.38 per share compared to a loss of $0.09 and $0.22 per share for the same periods in 2014. Litigation expense is account for a loss of $0.05 and $0.09 per share from a three and nine months ended September 30, 2015 and the remaining losses are reflective of our status as a development stage or early commercial company. Looking at our cash and cash usage. We ended the quarter with 84.1 million in cash and cash equivalence. During the third quarter of 2015, we spent 9.7 million. Of that 9.7 million, 3.3 million was spent on litigation expenses, 1.4 million was spent completing additional cleanroom space and other balance sheet requirements and 5 million was spent on operating activities. Of the 5 million spent on operating activities, we spent 5.6 million on product development and clinical expenses, 700,000 was paid to cover sales and marketing and general and administrative expenses in excess of the contribution we received from a revenue generating activities. We also benefited from cash inflows from other income including foreign exchange gains and interest of 1.3 million. Looking more broadly to the year-to-date, we have spent 22.1 million of which 5.5 million relates to litigation expenses, 3.1 million relates primarily to property plant and equipment purchases and 13.5 million relates to product development and clinical trial costs excluding non-cash items. Aside from litigation expenses, we remain satisfied that we are correctly allocating our cash resources for the development of our key product lines Tiara and Reducer and other related activities. We anticipate that our cash expenditures on operational activities will increase as we move further into our clinical studies for these products but our forecast suggest we have cash on hand for at least the next 18 months. And our primary focus for those expenditures is to extreme out for Tiara and continue to plan rolled-out of Reducer in selected markets. I will now hand the proceedings back to Alexei.

[Alexei Marko:]

Thanks Chris. I’m going to use the next 10 minutes to review both our Reducer and Tiara program while the devices are very different and target different types of cardiovascular disease, they do share a few common qualities that are important to us here at Neovasc. Firstly, they are both born from an engineering perspective developed on the ground up to meet the specific clinical needs of our intended patient population. Secondly, both are targeting debilitating cardiovascular conditions that currently have very limited treatment option. We believe these therapies can move the needle not just incrementally but dramatically and we are committed to bringing the best possible devices to market to safely and effectively treat patients. I’m going to start with Reducer. Reducer can have a huge impact for people suffering from refractory angina, a condition which drugs of other therapies are not working. Refactoring angina patients suffer from severe ongoing chest pain which often dramatically limits their activities. They generally suffer from very poor quality of life and in spite of this, there is little that the doctor can do to help. As most of you on know, falling compelling efficacy results from our COSIRA study with 102 patients which was published in the New England Journal of Medicine spring. Reducer was launched commercially in Europe in the first quarter of 2015. While very targeted present, that launch this meeting all our internal expectations. Currently to give you a feel for the launch we have distributors in four countries, the U.K., Italy, Switzerland and Saudi Arabia and we are using a direct sales force in Germany currently consisting of two reps with plan to expand this team in 2016. Physician feedback has been very positive and as the months go way with more and more patients coming back following treatment we've significantly reduced angina improved quality and improved quality of life physician support is steadily growing. Physicians report that is the procedures are typically completed without complications or difficulty and taken average of less than 20 minutes to implant. Currently the average selling prices for Reducer's are variable depending on the country and we are still working to reimbursement in the various jurisdictions we are selling in. For market related reasons, we are not going to get into the details of pricing but we can say that we are pleased with the pricings and gross margins at this point in the launch. Looking ahead, we anticipate adding up to six more people in Germany over the next 12 months and with respect to our North American plans, we expect to have a pre IDE meeting with the FDA before year end and look to initiate an IDE study by mid-2016. Let's transition to Tiara. Tiara is our transcatheter mitral valve replacement technology and it's been designed to provide a simple, safe and effective treatment for patients who have severe MR and are high risk for surgery. As I think most of us now implanting a transcatheter valve in a mitral valve position is a very difficult thing to do with variable and highly dynamic anatomy and it was not until last year that – first started to see real successes in this area. Tiara is implant to translate in a secure a place using a unique combination of bankers which targets specific structures of the heart and seek the natural shape of the native mitral valve. To-date, 11 patients have been implanted with Tiara. Overall, early results for the device have been encouraging. Typical implantation times during the range of 10 to 20 minutes with skin to skin procedure times of around an hour. 8 of the 11 cases have proceeded substantially as intended resulting in well position, stable implants with good prosthetic valve function, no weeks without device or procedural issues. In two of the 11 cases, Tiara is now positioned to implant and required conversion to surgery. In one of these, the Tiara value was removed and replaced with a surgical valve and the other the Tiara value was repositioned slightly to achieve faster function and [indiscernible]. In the remaining case following what was initially a successful procedure, the patient developed a ventricular septal defect due to excessive contact between one area of the Tiara device in ventricular septum. On investigation it was determined that such interaction could be avoided in future cases to modification to the screening procedures. To-date the 30 day survival rate for the first 11 patients implant to the Tiara is 73 with one patient now over 600 days post implant, another patients enjoying a much improved quality of life. As indicated previously, as with most programs working in this field Tiara implant patients done to-date has been completed under early feasibility in compassionate used protocols in very sick, high surgical risk patients with very limited alternative options. We are very much encouraged by the results to-date and are working very hard to continue to learn from each implant. Over the course of these first 11 implantations, all our physicians, clinical team and engineers have made significant strive to better understand this important new field and how best to advance the Tiara program. We have improved our understanding of the implantation procedure and made significant refinements in this area. We have indentified and clearly defined a need for broaden range of device sizes to treat patient anatomies and these are underdevelopment now. We have also gained other important information which will be used in ongoing refinements to the Tiara for incorporation or for incorporation into next generation Tiara products. And perhaps most importantly, we are learning how best to screen and select patients for TMVI and in particular our Tiara device. This is now why they recognize that this is one of the most critical areas for TMVI. Tiara is the subject of a multinational FDA approved feasibility study called Tiara 1 and we are continuing to enroll in this study along with facilitating compassionate used cases as appropriate. As most of you know, enrollment has been slower than planned. This has been a result of a number of factors most notably our limitation to a single 35 millimeter size but it also imparts been due to our desire to proceed cautiously and learn as much as possible from each case. We have completed and implanted the 40 millimeter size and their compassion used protocols and are working to get this improved and into the Tiara 1 study presently. We expect to see 45 millimeter Tiara devices into clinical use next year along with making other refinements for the 35 and 40 millimeter Tiara devices that will be broaden the treatable patient population. We have also relaxed a number of exclusion criteria which we believe will extend the eligible patient population further aid in enrollment. For example, we have demonstrated that Tiara can be successfully implanted in patients with certain sorts of prosthetic aortic valves and mitral annulo rings in place. We’ll provide further details of these development activities and clinical changes when appropriate. We continue to target completion of Tiara 1 by mid 2016 and CE Mark in 2017 and will provide further updates on this as the timelines will become more clear. We continue to be highly encouraged by these early results from the Tiara program and believe that Tiara remains one of the most promising programs in the TMVI field. We are continuing to advance the program in a measured and methodical manner noted within the best possible Tiara products to market to safely and effectively treat this large patient population. Going forward, we expect to provide periodic updates on our clinical progress and clinical results will continue to be presented at major conferences such as TCT and EuroPCR as appropriate. We will provide more high level focus updates in our quarterly results and calls but we will not be providing detail on individual patient's results every quarter. In closing, we are very excited about our progress and the opportunity for our Company over the next 12 to 18 months. We have two leading program with the treatment of MR and refractory angina and we're well positioned and capitalized to continue to drive them forward. We look forward to keeping everyone updated and we are scheduled to attend multiple investor conferences in November. Hopefully we’ll see some of you there. With that said, I would like to turn the call back over to the moderator and open the floor to any questions that you have.

[Operator:]

[Operator Instructions] Your first question comes from John Gillings, JMP Securities. John, please go ahead.

[John Gillings:]

Hi, good morning guys. Thanks for taking the questions.

[John Gillings:]

So first one I want to hit on is just the case that you mentioned with the ventricular septal defect, you mentioned that this is something you think you can avoid by changing the screening criteria and I guess what I am wondering is do you have an idea of what percentage of patients this will screen out. Is it something significant or is it something very small to any work you may have done there, any color you can give would be helpful?

[Alexei Marko:]

Yes John. We don't believe it's significant, we think this was an anomalous case and we don’t believe this is going to have a material effect on our screening.

[John Gillings:]

Okay. I appreciate that. And then just really quickly to move over to Reducer. It was pretty nice sequentially step up about 26% in sales, was there anything one time, I know you mentioned stocking orders in the press release, were there any large stocking orders or anything that would be just sort of one time in the quarter or was that also impacted by strength of reorders?

[Alexei Marko:]

Yes, we are starting to see a fair reorder rate now which is really encouraging for us. So obviously there are initial stocking orders as we bring new accounts on, we open new countries up but there hasn’t been any, sort of, large one time order in those numbers but we are starting to see distributors come back and make reorders. So we expect that to continue, grow steadily over the next quarters.

[John Gillings:]

Okay. And then just one last one also on Reducer real quickly. Obviously you guys have a very significant focus on TR and that makes sense given the size of the market but you've got to trade a balance the budget for TR and getting that across the finish line in Europe with ramping up some sales in Reducer. Can you just give us a sense of how you think about funding the roll out? How aggressive you are willing to be in driving growth there and that will be it from us, thanks.

[Alexei Marko:]

Yes, I think - we are trying to strike a balance. With Reducer it is a new type of therapy, we’re learning to practice patterns, we’re learning to reprove patterns. Our strategy through 2015 is largely been to learn those patterns and learn how to market this product in selected countries. We’ve been very happy with the results to date on that. So as we move into 2016, we are not turning the taps wide open of course but I think we’re going to significantly expand those activities I think alluded in the main portion of the call, we are looking to add about six reps in Germany. We currently have two folks on the ground there. We are seeing some very nice results from those folks. So we will be adding six reps into Germany, looking at expanding our marketing and support activities and looking to open up a number of additional countries. So taking a measured approach but certainly expanding the effort and resources being allocated to Reducer.

[John Gillings:]

All right, great. Thanks a lot guys.

[Operator:]

Thank you. Your next question comes from Jason Mills, Canaccord Genuity. Jason, please go ahead.

[Jason Mills:]

Thank you. Good morning Alexei and Chris. Can you hear me, okay. I know it’s early and you’re still hoping to enroll fully TR1 but as we move forward and think forward, at this point in time Alexei, have you gotten to the point where you can discuss with us at least preliminarily what the conversations have been like with FDA or other regulatory bodies that should move into pivotal trials for TR specifically over the next couple of years, number of centers, number of patients endpoints, is there anything at this point that you can share with us?

[Alexei Marko:]

It’s a little bit early Jason. We haven't had any formal discussions with the FDA yet related specifically to the pivotal but we are starting to turn our attention to designing a CE Mark starting to determine exactly what’s going to be required for the CE Mark. So that’s something that those discussions are starting to happen now, and I think we’ve been in a good position around the end of the year or really with our year end or next quarter call in order to layout some timelines on that.

[Jason Mills:]

Okay. That's helpful. We will wait for that I suppose. You also mentioned in your prepared remarks Alexei some improvements over time to the 35 and the 40 millimeter valve, you think you can expand the pivotal patient population if I’ve heard you correctly. Could you talk about the evolution of TR specifically in those valves and then also 45 when we might see that implanted in a patient first time?

[Alexei Marko:]

Yes Jason. First of all we are very happy with the performance of the 35 and the 40 in their current format but that said obviously you learn things from doing your first implant. So we will be making some slight tweak to those going forward. I think those would be almost invisible to the naked eye. Most of the folks who are not intimately familiar with the devices wouldn’t even recognize what those are. So there are very slight shape changes and then as far as working on the 45, the 45 is underway. Our intent had been to, sort of, get it implanted into clinically use in the front half of 2016. We are going to probably push that back a little bit just to make sure that we can implement some of these tweaks and changes that we are putting into the 35 and the 40 and to the 45. So we should see a number of those refinements coming into play next year.

[Jason Mills:]

Okay. Lastly from me Alexei and then I'll get back in queue. You had a very successful life case at TCT and what was sort of striking to us was that the transapical delivery went relatively assumingly and it seem to be relatively straightforward and was the comments from the - the panel were all very positive. In fact it seem like the ease, the procedure surprise some of the key opinion leaders on the panel. Could you talk about that live case, could you talk about how representative that is of the other 10 cases that have been down with Tiara and may be just talk more broadly about the whole debate about transapical versus transseptal delivery and what you see moving forward. Thanks for all the answer Alexei.

[Alexei Marko:]

My pleasure, Jason. I've always been a big fan of the transapical approach. I recognize that it is more invasive then transfemoral but due to the position of the mitral valve and really the ease of access to the Tiara route, I think it has a lot of merit. Typically these procedures can be performed without much difficultly transapically, you don’t tend to see a lot bleeding or issues at the impact side, certainly it does occur occasionally but I think the clinical community has gotten quite good at doing these types of procedures. So I think just based on the ease of access and the speed at which a procedure can be completed through the transapical route is it certainly has marred and I think it will continue to be the standard approach for the foreseeable future. That said of course we recognize that transfemoral is the eventual goal just due to the less invasiveness of it but there is some added complexity in terms of how you have to approach it across the [indiscernible] whatever does that you’re choosing to do. So it's an area that we’re certainly working and we expect to have transfemoral devices down the road but we’re not seeing that- we’re focused on transapical at present and we see transfemoral was something down the road.

[Jason Mills:]

Thank you.

[Operator:]

Thank you. Your next question comes from Danielle Antalffy, Leerink Partners. Danielle, please go ahead.

[Danielle Antalffy:]

Hi, good morning guys. Thanks so much for taking the questions. Just wondering about the 40 millimeter Alexei, can you talk about what's left to do with FDA to get back in that trial?

[Alexei Marko:]

Hopefully nothing. The 40 millimeter application is going into the FDA, we believe we have done the testing required to satisfy their needs. Obviously, we’ve been in close discussions with them all the way along and developed our testing plan based on collaboration with them. That said, it is in review process and needs actually get through the review before I can say what we’ve done as adequate but we believe that we’ve done everything that we need to do or substantially everything that we need to do.

[Danielle Antalffy:]

Okay, that's helpful. And then as far the CE Mark trial goes, can you talk about what you think the endpoints would be. One of the questions that we get a lot is whether people are focused on mortality or just MR reduction? Can you talk about what you think the endpoints would be in a randomized trial here?

[Alexei Marko:]

I think it’s - having not said down but our notified body and determined exactly what they need to see and design the trial, it’s a little premature but my guess at this point will be, it would be a combination of the two. You need to show MR reduction and lack of paravalvular leaks, so I think obviously having a technical success in these procedures is important. So clearly that's an endpoint and if TAVI is the predicator that we’re going to use in the - then 30 day mortality endpoint would be the other one. So I think it will be a combination of the two, that said we haven’t designed the trial yet and having had the discussions but that would be my best guess at this point.

[Danielle Antalffy:]

All right, that's helpful. Thank you.

[Operator:]

Thank you. Your next question comes from Puneet Souda, Leerink Partners. Puneet, please go ahead.

[Puneet Souda:]

Hi guys. Danielle already asked the questions, so I just have a quick just modeling - one quick question on the - could you give us the revenue by geography for this quarter?

[Alexei Marko:]

The revenue pardon me -

[Puneet Souda:]

The geography I mean in terms of you had the European revenue as well as North American revenue, if you have those breakdowns for this quarter or those are something that you are not giving forward?

[Alexei Marko:]

There is segment we'll disclose here in the financial statement and I think I can turn you to that. Obviously all of our Reducer revenue has been aimed Europe but other than that there was really no further disclosure and as we are limited to a number of key customer accounts now, I think the disclosure in the financial statements is pushing.

[Puneet Souda:]

All right guys. Thanks so much. That's it for me.

[Operator:]

Thank you. There are no further questions at this time. Please proceed.

[Alexei Marko:]

Thanks everyone for your time on this cal. And we look forward to seeing you at upcoming conferences and events.

[Operator:]

Thank you. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.